Posts in Breach of Contract

Superior Court: No Ambiguity, No Extrinsic Evidence, No Dice

Dubuque v. Taylor, 2007 WL 3106451 (Del. Super. Oct. 1, 2007)

This case demonstrates that a Delaware court will not consider extrinsic evidence of the parties’ intent at the time of entering an agreement if the terms of the document are unambiguous.

The buyer/plaintiff purchased a transmission business called Goodeal Discount Transmissions of Dover, Inc., thinking it was a sole proprietorship. But after the closing, the franchisor—not the seller—came knocking on the buyer’s door seeking unpaid franchise fees and stating the amount to be paid going forward. Soon thereafter, the buyer sued the seller/former owner for breach of contract for failing to disclose that the business was a franchise, for breach of the contractual warranties, and for fraudulent misrepresentation.
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Court of Chancery Upholds Objective Theory of Contract Interpretation

Seidensticker v. The Gasparilla Inn Inc., C.A. No. 2555-CC (November 8, 2007).

In this decision, the Court of Chancery has once again held that a contract means what it says, not what the parties say they subjectively intended. Thus, if the contract is unambiguous in its language, the Court will not accept explanations of what it was supposed to mean. Instead, the Court will enforce the contract as written. This opinion is useful for its review of recent case law that some have suggested adopted a "subjective" theory of contract interpretation under which, as the Cheshire Cat once said, "A word means what I say it means." Not so in Delaware.

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District Court Finds No Ambiguity or Third Party Beneficiary Status, Grants Motion for Summary Judgment

MBIA Ins. Corp. v. Royal Indem. Co., 2007 WL 3125319 (D.Del. Oct. 25, 2007)

In this opinion the District Court resolved cross-motions for summary judgment on the defendant’s counterclaim for breach of contract. The relationship between the plaintiffs and the defendant arose out of the underwriting of student loans. Student Finance Corporation (“SFC”) underwrote loans to students using funds from banks, then allegedly fraudulently issued “forbearance payments” in order to hide delinquent and defaulting loans. SFC transferred the loans to several trusts, which then issued fixed income notes, called Certificates, to investors. Plaintiff #1 was the trustee of trusts holding the securitized student loans. Defendant insured the loans that backed the Certificates with insurance policies that unconditionally guaranteed the students’ repayment of principal plus 90 days interest. Plaintiff #2 guaranteed payment of the Certificates in the event that the Defendant failed to honor its policies on the loans. Plaintiffs sued Defendant seeking to enforce its unconditional guarantee to repay the loans. Defendant counterclaimed against Plaintiff #1 for breach of contract, arguing that Plaintiff #1 did not adequately fulfill its oversight responsibilities under applicable Pool Servicing Agreements (“PSAs”) with respect to the servicing of the loans, and thus did not discover the allegedly fraudulent forebearance payments, resulting in Defendant engaging in continual transactions with SFC. Plaintiffs’ claim for enforcement of Defendant’s guarantee obligation was settled, leaving the Court only Defendant’s counterclaim to resolve.  More ›

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Court of Chancery Explains Limits of Requirements Contract

XO Communications LLC v. Level 3 Communications Inc., C.A. No. 2131-VCL (November 2, 2007).

While the actual terms of a contract will control its meaning, there are occasions when legal rules will determine the result of a contract dispute. Here, the Court of Chancery noted the rule that in the case of a requirements contract, it is bad faith for the buyer to produce for its own use the materials that it committed to buy from the other party  to the contract. The Court held that rule did not apply when at the time the requirements contract was entered into, the buyer had the means of producing the goods it had agreed to buy from the other party as well. In short, the requirement was not to use the producing party exclusively.

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District Court Applies Delaware Statute of Limitations Carve Out For Fiduciary Claims, Denies Summary Judgment

Norman v. Elkin, 2007 WL 2822798 (D.Del. Sept. 26, 2007)

In this action the District Court evaluated the application of the statute of limitations to claims that a corporate fiduciary engaged in self-dealing at the corporation’s expense. Plaintiff was a 25% shareholder in a closely-held Delaware corporation with Pennsylvania headquarters, formed to participate in the wireless communications industry. Defendant #1 owned the remaining shares of the corporation, and also served as its President and sole director. Plaintiff alleged that Defendant #1 breached his duties to the corporation when he personally obtained newly-issued communications licenses from the FCC, then sold them along with the corporation’s pre-existing licenses to a third party, keeping the proceeds of the sale himself. Plaintiff further alleged that Defendant #1 took the action without notifying Plaintiff in his capacity as a shareholder, without holding an annual meeting, and without making any disclosure of the sale. Plaintiff sued Defendant #1, along with his wholly owned corporation and another corporate officer, in the Delaware Court of Chancery for breach of contract, unjust enrichment, declaratory relief, and breach of various fiduciary duties. Defendants removed the action to District Court based on diverse citizenship and moved for summary judgment, arguing that all claims were time-barred. More ›

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Court of Chancery Explains Weight of Evidence

LaPoint v. Amerisourcebergen Corporation, C.A. No. 327-CC (September 7, 2007).

In this otherwise fairly common breach of contact case, the Court of Chancery has once again emphasized the importance of evidence that is contemporaneous with the parties' contract and their conduct. Explanations after the fact are viewed as much less convincing than, as in this case, emails created at the time when litigation was not on everyone's mind.

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Superior Court Holds Measure of Damages in Quasi-Contract Action is Value of Services Provided, Not Benefit Received

Hynansky v. 1492 Hospitality Group, Inc., C.A. No. 06C-03-200, 2007 WL 2319191 (Del. Super. Ct. Aug. 15, 2007).

This case sets forth the appropriate measure of damages under a quasi-contract theory (in this instance quantum meruit): the value of the services provided, not the value of the benefit received. 

The plaintiff made a typical business loan to the defendant to be paid back with interest, but also agreed to provide additional services to help the defendant avoid foreclosure on other loans, reduce the businesses debt load, and restore profitability. In return for these services, the defendant offered the plaintiff a partnership interest in the business. 

But when the business improved, the defendant allegedly stopped working with the plaintiff—and eventually sold the business for a profit.  More ›

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District Court Allows Breach of Fiduciary Duty Claim Under ERISA, Dismisses State Contract Claim

Roarty v. Tyco Int'l Ltd. Group, 2007 WL 2248086 (D. Del. Aug. 2, 2007)

In this action alleging violations of ERISA and state contract law, Defendants moved to dismiss two of the claims under F.R.C.P. Rule 12(b)(6). Plaintiff’s husband was employed by one of the defendants. Plaintiff brought the action against the employer and its insurance company, alleging that Defendants wrongfully denied her claim under an employee welfare benefit plan after her husband was killed while on a business trip. She alleged that defendants wrongfully denied benefits under ERISA, breached fiduciary duties owed under ERISA, and violated state contract law. Defendants moved to dismiss the fiduciary breach and state contract claims. The Court allowed the breach of fiduciary duties claim, but dismissed the state contract claim.
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Superior Court Holds Punitive Damages Are Not Precluded Where Separate Tort Claim Exists Alongside Contract Claims

Data Mgmt. Int’l v. Saraga, C.A. No. 05C-05-108, 2007 WL 2142848 (Del. Super. Ct. July 25, 2007).

Generally, a plaintiff bringing a claim based entirely upon the breach of a contract must sue in contract and is limited to contract remedies. No tort exists merely because a party breaches a contract—even if intentionally. But, the same conduct upon which the breach of contract claim is grounded may give rise to a tort claim if the conduct independently amounts to the breach of such an independent duty imposed by law. And with a tort claim comes the availability of punitive damages. More ›

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District Court Rejects Dismissal of Bad Faith Breach of Contract and Fraud Claims Against Insurer

Homsey v. Vigilant Ins. Co., C.A. No. 07-338-JJF (D. Del. July 31, 2007)

 

In this action alleging, inter alia, bad faith breach of contract and consumer fraud, the defendant insurance company sought dismissal of those counts pursuant to F.R.C.P. Rule 12(b)(6) for failure to state a claim for which relief could be granted. Plaintiffs held an insurance policy with Defendant that contained provisions covering credit card fraud and check forgery. Plaintiffs submitted a claim pursuant to those provisions for over $250,000 in allegedly fraudulent credit card charges and forged checks. Nearly one year later, Defendant tendered payment of $10,000 for the claim, contending that this amount represented the maximum amount due under the policy. Plaintiffs argued that the policy provided broader coverage, and alleged that Defendant denied or delayed payment on Plaintiffs’ claim without reasonable justification.   Defendants argued that there was a bona fide dispute as to the policy’s language, such that Defendant could not be found to have acted unreasonably. Defendant also argued that Plaintiffs did not plead consumer fraud with particularity. The Court denied Defendant’s motion, finding that Plaintiffs pled sufficient facts to state both the bad faith and consumer fraud claims. More ›

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District Court Grants Canadian Corporation's Motion to Dismiss for Lack of Jurisdiction

Alcoa Inc. v. Alcan Inc., C.A. No. 06-451-SLR (D.Del. July 17, 2007)

 

In this action for declaratory judgment, Plaintiff sought a ruling that it was not liable to various Defendants for the clean-up costs associated with environmental contamination on a property Plaintiff formerly owned. Plaintiff sold the contaminated property to Defendant 1 pursuant to an acquisition agreement that provided for a 12 year indemnification for certain environmental liabilities. Defendant 1 then sold the property to Defendant 2 with a separate indemnification agreement. Defendant 3 later acquired Defendant 2 and its subsidiary. When Defendant 3 sought to sell the contaminated property, the contamination was detected. Defendant 3 sought indemnification from Defendant 1, which then sought indemnification from Plaintiff. Plaintiff rejected the indemnification demand under the argument that it was outside the scope of the acquisition agreement, and sought declaratory judgment that it was not liable to any of the Defendants. Defendant 3, a Canadian corporation, moved to dismiss for lack of personal jurisdiction. More ›

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District Court Denies Motion to Dismiss For Failure to Join Indispensable Party

Alcoa Inc. v. Alcan Inc., 2007 WL 2083813 (D.Del. July 17, 2007)

In this action for declaratory judgment, Plaintiff sought a ruling that it was not liable to various Defendants for the clean-up costs associated with environmental contamination on a property Plaintiff formerly owned. Plaintiff sold the contaminated property to Defendant 1 pursuant to an acquisition agreement that provided for a 12 year indemnification for certain environmental liabilities. Defendant 1 then sold the property to Defendant 2 with a separate indemnification agreement. Defendant 3 later acquired Defendant 2 and its subsidiary. When Defendant 3 sought to sell the contaminated property to the city in which the property was located, the city first required, both as part of the purchase agreement and through a letter to Plaintiff, that the contamination be sufficiently remedied. Defendant 3 sought indemnification from Defendant 1, which then sought indemnification from Plaintiff. Plaintiff responded to the city’s letter that Defendant 3 was responsible for the clean up, and rejected Defendant 1’s indemnification demand under the argument that it was outside the scope of the acquisition agreement. Plaintiff sought declaratory judgment that it was not liable to any of the Defendants. Defendant 1 moved to dismiss under F.R.C.P. Rule 12(b)(7) for failure to join an indispensable party, arguing that Plaintiff should have joined the city. More ›

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District Court Allows Estoppel, Breach of Contract, Fraud Claims Against LLC Member, Dismisses Other Defendants

Christ v. Cormick, 2007 WL 2022053 (D.Del. Jul 10, 2007)

In this action for damages based on promissory estoppel, breach of contract, fraud and civil conspiracy, Plaintiff sued the founding member of a Delaware LLC (“Member Defendant”), as well as various foreign individuals and entities (“other Defendants”) associated with the Member Defendant. Plaintiff’s claim arose out of an alleged agreement with the Member Defendant to invest $350,000 in exchange for a 50% equity interest in a South African investment management corporation and a Delaware LLC which owned certain intellectual property rights. Plaintiff claimed that the Member Defendant accepted $250,000 from Plaintiff, but diverted the money to another entity he was affiliated with. Plaintiff further alleged that the Member Defendant promised to repay Plaintiff the $250,000 that was invested, but did not do so. The Defendants moved to dismiss the action under F.R.C.P. Rule 12(b)(2) for lack of personal jurisdiction. The Defendants also moved for dismissal of the conspiracy claim under F.R.C.P. Rule 12(b)(6) for failure to state a claim, and dismissal of both the fraud and conspiracy claims as being outside the statute of limitations. Finally, the Defendants moved for a stay of the action under principles of comity in favor of Plaintiff’s earlier filed action in South Africa. More ›

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Court of Chancery Rejects Late Acceptance

Centreville Veterinary Hospital Inc. v. Butler-Baird, C.A. No. 1552-VCP (July 6, 2007).

Second thoughts sometimes reach the right conclusion. The problem, however, is that they may get there too late. This decision holds that once a contract offer is made, the rejection of that offer revokes the power to change your mind and later accept the offer. Based on the reasoning of the Restatement of Contracts (2nd) Section 38, the Court noted that rule works both ways and is grounded on the need to have a bright line test in such matters.

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Superior Court Applies Contract Choice Of Law Rules

AT&T Wireless Services, Inc.v. Federal Insurance Company, C.A. No. 030-12-232-WCC (June 25, 2007).

What law applies is often a thorny issue in complicated business cases. It is even more complicated when tort and contract claims are mixed together. Throw in a merger or two and it is a real mess. Here, the Superior Court has cut through this fog to decide that one state's law applies in the whole litigation.

First, the Court determined that the principles of the Restatement of Conflict Section 188 that governs choice of law in contract cases would apply. This was done even though tort claims were also raised by the complaint. The Court reasoned that as the tort claims were based on the existence of the contract, it met the parties' probable expectations to apply contract choice of law principles.

In doing so, the Court focused on the principle place of business of the insured in this contract dispute with its insurers. While that is one of the five factors set out in the Restatement, the Court gave it great weight under the unusual circumstances of this case.

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